7.Share-based Compensation

Shares reserved for issuance

The Company had reserved for issuance for the periods noted (in thousands):

	December 31, 2017		June 30, 2017
2014 Employee Stock Purchase Plan		6,517		7,785
Employee stock options and awards outstanding		10,900		9,726
2013 Equity Incentive Plan shares available for grant		12,242		7,629
Total shares reserved for issuance		29,659		25,140

Share-based compensation expense recognized in the condensed consolidated financial statements by line item caption is as follows (in thousands):

	Three Months Ended				Six Months Ended
	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Cost of product revenue	$	134	$	122	$	226	$	190
Cost of service revenue		296		186		429		418
Research and development		1,829		906		2,880		1,968
Sales and marketing		2,699		1,180		4,342		2,321
General and administrative		2,067		987		3,951		1,959
Total share-based compensation expense	$	7,025	$	3,381	$	11,828	$	6,856

During the six months ended December 31, 2017 or 2016, the Company did not capitalize any share-based compensation expense in inventory, as the amounts were immaterial.

Stock Awards

Stock awards may be granted under the 2013 Equity Incentive Plan (the “2013 Plan”) on terms approved by the Compensation Committee of the Board of Directors. Stock awards generally provide for the issuance of restricted stock units (“RSUs”) including performance or market-based RSUs which vest over a fixed period of time or based upon the satisfaction of certain performance criteria. The Company uses the straight-line method for expense attribution, and beginning with fiscal 2017, the Company does not estimate forfeitures, but accounts for them as incurred.

The following table summarizes stock award activity for the six months ended December 31, 2017 (in thousands, except grant date fair value):

	Number of Shares			Weighted- Average Grant Date Fair Value		Aggregate Fair Market Value
Non-vested stock awards outstanding at June 30, 2017		6,664		$	4.66	$	61,440
Granted		3,726			11.13
Vested		(1,871	)		3.78
Cancelled		(160	)		5.17
Non-vested stock awards outstanding at December 31, 2017		8,359		$	7.73	$	104,653

The following table summarizes stock option activity for the six months ended December 31, 2017(in thousands, except per share and contractual term):

	Number of Shares			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Options outstanding at June 30, 2017		3,062		$	4.06		4.19	$	15,868
Exercised		(517	)		4.42
Cancelled		(4	)		4.31
Options outstanding at December 31, 2017		2,541		$	3.99		3.28	$	21,687
Vested and expected to vest at December 31, 2017		2,541		$	3.99		3.28	$	21,687
Exercisable at December 31, 2017		2,126		$	4.24		3.08	$	17,599

The fair value of each stock option grant under the 2013 Plan and 2005 Equity Incentive Plan is estimated on the date of grant using the Black-Scholes-Merton option valuation model with the weighted average assumptions noted in the following table. The Company uses the Monte-Carlo simulation model to determine the fair value and the derived service period of stock awards with market conditions, on the date of the grant. The expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behavior. The risk-free rate is based upon the estimated life of the option and the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on the historical volatility on the Company’s stock.

The fair value of each RSUs grant with performance-based vesting criteria (“PSUs”) under the 2013 Plan is estimated on the date of grant using the Monte-Carlo simulation model to determine the fair value and the derived service period of stock awards with market conditions, on the date of the grant.

During the first quarter of fiscal 2018, the Company approved the grant of 1,154,014 stock awards to its vice president level employees or above (“VPs”), including 560,344 stock awards to its Executive Officers, and 939,925 stock awards to its other employees. Fifty percent (50%) of the stock awards granted to the VPs, except the chief executive officer, were in the form of PSUs, with grant date fair values of $10.90, and fifty percent (50%) of the stock awards granted were in the form of service-based RSUs. The Company’s chief executive officer received sixty percent (60%) of his stock award grant in the form of PSUs, while forty percent (40%) of this award were in the form of RSUs, with a grant date fair value of $10.90. The RSUs vest from the original grant date as to one-third (1/3) on the one year anniversary and one-twelfth (1/12) each quarter thereafter, subject to continued service to the Company. No PSUs were granted during the second quarter of fiscal 2018.

For the PSUs referenced in the preceding paragraph, they will be considered earned once the Company’s combined earnings per share equals or exceeds $0.32 for two consecutive quarters. (the “FY18 Performance Threshold”). Once the FY18 Performance Threshold is satisfied the PSUs shall vest with respect to the number of RSUs granted on the same date that have vested as of the date the FY18 Performance Threshold is satisfied and thereafter shall vest on the same schedule as the RSUs, subject to continued service to the Company. If the FY18 Performance Threshold is not met by the third anniversary of the grant date the award is canceled. In addition, the FY18 Performance Threshold shall be deemed satisfied upon the closing of a Change in Control (within the meaning of the Company’s 2013 Equity Incentive Plan) in the event the per share consideration received by the Company’s stockholders equals or exceeds $16.00 per share.

During the three months and six months ended December 31, 2017, none of the PSU grants referenced above achieved their FY18 Performance Threshold.

During the first quarter of fiscal 2017, the Company approved the grant of 1,505,120 stock awards to its VPs, including 680,000 stock awards to its Executive Officers, and 1,053,300 stock awards to other Company employees. Fifty percent (50%) of the stock awards granted to the VPs were in the form of PSUs, with grant date fair values ranging from $3.02 to $3.09, and fifty percent (50%) of the stock awards granted were in the form of RSUs. The RSUs vest from the original grant date as to one-third (1/3) on the one year anniversary and one-twelfth (1/12) each quarter thereafter, subject to continued service to the Company. No PSUs were granted during the second quarter of fiscal 2017.

The PSUs were considered earned once the Company’s stock price equaled or exceeded $5.00 per share for 30 consecutive trading days after January 1, 2017 (the “FY17 Performance Threshold”). Once the FY17 Performance Threshold goal was attainted the PSUs began to vest on the same schedule as the RSUs that were granted at the same time, subject to continued service to the Company.

During the quarter ended March 31, 2017, all of the PSU grants referenced above achieved their FY17 Performance Threshold and as such, began vesting and will be released on the schedule as noted, subject to continued service to the Company.

The fair value of each share purchase option under the Company’s Employee Stock Purchase Plan (“ESPP”) is estimated on the date of grant using the Black-Scholes-Merton option valuation model with the weighted average assumptions noted in the following table. The expected term of the ESPP represents the term of the offering period of each option. The risk-free rate is based upon the estimated life and on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on the historical volatility on the Company’s stock.

There were no shares granted under the ESPP during the three months ended December 31, 2017 or 2016. The weighted-average fair value of shares granted under the Company’s 2014 ESPP during the six months ended December 31, 2017 and 2016, was $2.41 and $1.00, respectively. There were 1,267,930 and 1,103,599 shares issued under the Company’s 2014 ESPP during the six months ended December 31, 2017 and 2016, respectively.

	Employee Stock Purchase Plan
	Six Month Ended
	December 31, 2017			December 31, 2016
Expected life	0.50 years			0.50 years
Risk-free interest rate		1.15	%		0.40	%
Volatility		42	%		40	%
Dividend yield		—	%		—	%